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Bubble Watch: The Everything Bubble is Riskier and Less Liquid Than Housing

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Published : December 07th, 2017
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Category : Crisis Watch

As we keep emphasizing, the world is in an Everything Bubble.

In truth, it is a bubble in sovereign bonds, created by Central Banks attempting to corner these markets via ZIRP and QE.

However, because sovereign bonds are the bedrock for the current fiat financial system, if they go into a bubble, EVERYTHING goes into a bubble.


Because if you skew the “risk-free return” of the financial system (US sovereign bonds or Treasuries) ALL risk will adjust accordingly.

24hGold - Bubble Watch: The Ev...

Case in point, consider the latest report from The Economist about corporate debt.

As late as 2008, more than 80% of non-financial corporate bond issuance was rated A or above, according to Torsten Slok of Deutsche Bank; in the past five years, the proportion has been consistently under 60%.

            Source: The Economist.

In layman’s terms, this report is telling us that even in 2008 (a period that everyone admits was a disaster in terms of debt) corporate bonds were less risky than they are today.

Yes, corporations have MORE leverage via WORSE debt today, than they did going into the Great Financial Crisis. The Economist report even states this explicitly.

That means the average corporate bond is riskier than before. At the same time, the reforms that followed the crash of 2008 mean that banks have to hold more capital (quite rightly). But this also means they are less willing to devote capital to market-making; as a result, the bond market is less liquid than before. So investors in corporate bonds are holding a riskier, less liquid asset.

Source: The Economist.

That last phase could very well be the mantra for the entire financial system today: everything is riskier and less liquid than it was in 2008.

Indeed, because Central Banks have soaked up so much sovereign debt in the last nine years, there is less high quality collateral backstopping the $600 TRILLION derivatives markets.

Again… the financial system is riskier and less liquid today than it was in 2008.

You can thank Central Bankers for this.

And when this bubble bursts (as all bubbles do) the policies Central Banks employ will make those from 2008-2015 look like a cakewalk.

We are putting together an Executive Summary outlining all of these issues as well as what’s to come when The Everything Bubble bursts.

It will be available exclusively to our clients. If you’d like to have a copy delivered to your inbox when it’s completed, you can join the wait-list here:

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